Commodity Update: Minerals and Energy – June 2013

Overall, the heightened volatility in global financial markets associated with central bank decisions in the US and China has weighed on commodity prices. The slowdown in the Chinese economy is also gaining traction in markets and further weakens demand prospects.

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  • Overall, the heightened volatility in global financial markets associated with central bank decisions in the US and China has weighed on commodity prices. Bulk commodity prices remain under pressure from mounting concerns over China’s growth outlook.
  • Nevertheless, iron ore is receiving some support from tentative restocking activity, while a margin squeeze in the coal market could suggest that prices are approaching their bottom.
  • In the last two months, the oil market remained mixed, with West Texas Intermediate (WTI) continuing to firm relative to Brent and Tapis, narrowing the gap between Brent and WTI to the lowest in 30 months.
  • The loss of faith in gold as a store of value and the resultant falling investor demand have sent gold prices from around $1,600 an ounce just three months ago, to a recent trough of below $1,200 an ounce.
  • Reflecting ongoing weakness in prices, we have lowered our near-term forecasts for some commodities. We are holding onto our expectation for a modest recovery in demand over the forecast horizon that will help to stabilise prices, but the recovery is likely to be more muted than previously thought.

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